Int'l Cooperation

Last updated: Wednesday, December 19, 2018

Will Joining CPTPP Likely Reduce Burden for Vietnamese Enterprises?

Posted: Monday, June 04, 2018

Compared with Trans-Pacific Partnership Agreement (TPP), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has some important differences both in terms of contents and impact of commitments. The absence of the United States in CPTPP has partly reduced Vietnam's expectation for export, but other markets within CPTPP still offer significant opportunities. In addition, CPTPP temporarily suspends the implementation of some contents considered challenges for Vietnam and thus will partly reduce the burden on businesses during the implementation of this agreement.

Main differences between TPP and CPTPPInvestment: Investor-State Dispute Settlement (ISDS) mechanism is narrower in the CPTPP, not adjusting investment contracts and approvals.

Intellectual Property: 11 obligations, including important obligations such as biological products, copyright protection, protection of undisclosed test or other data are suspended.

Financial Services: ISDS is not applicable to breach of obligations on minimum standard of treatment.

Telecommunications: The suspended provision of obligation allowing enterprises to make complaint about regulation of the management bodies.

Government Procurement: suspended provisions of negotiation expansion to five years, instead of three years.

Cross Border Trade in Services: Postponement of cross-subsidisation in postal services as well as suspension of postal monopolies.

Environment: Suspension of the obligation to address violations to the wildlife trafficking laws.

According to Mr Ha Duy Tung, Deputy Director of the International Cooperation Department of the Ministry of Finance, for import tax, the partner countries in CPTPP undertake to abolish approximately 78-95 per cent of tariff lines right after the Agreement coming into force and completely remove 97-100 per cent of tariff lines.

The remaining products will have a roadmap for tax elimination within 5 to 10 years, except for some sensitive commodities with a roadmap of more than 10 years or tariff quota to be applied. Numerous key items of Vietnam exported to the CPTPP market, such as agricultural products, seafood, some items of textiles and footwear, wooden furniture, electrical goods, electronics, rubber shall enjoy a tax rate of zero per cent immediately after the Agreement taking into effect or after three to five years since the force of the Agreement.

Opportunities and challenges go hand in hand

“Some said that that ambition and standard levels of CPTPP are much lower than those of the TPP because its partner countries jointly suspend the implementation of some important obligations. This is a big misunderstanding," said Mr Tran Quoc Khanh, Deputy Minister of Industry and Trade.

In his opinion, all of TPP's market opening commitments as well as its vast majority of other important issues, including traditional and non-traditional sectors, remain within CPTPP.

CPTPP is still a new generation free trade agreement of high standards. This agreement not only establishes an important foundation for trading and investment activities in the region but also becomes a great encouragement for the current trade liberalisation process facing many obstacles.

Deputy Minister Khanh revealed that, the possibility of CPTPP to be approved by at least six member countries by the end of 2018, to be effective in early 2019 is very high. Therefore, opportunities and challenges from CPTPP are coming nearer and nearer.

According to Dr Vu Tien Loc, President of Vietnam Chamber of Commerce and Industry (VCCI), postponement of the implementation of some complicated obligations in TPP will certainly help Vietnam and other countries to have more time for adjustment and adaption in their respective fields. Yet, in overview, the institutional reform requirements from CPTPP are almost unaffected. The pressure on economic institution reforms for Vietnam remains unchanged.

TPP creates numerous opportunities for textiles, footwear and agricultural products to be exported to a huge market of the United States. But with CPTPP, the other potential exports of foods, beverages, cigarettes also appear. Changes in other areas such as services, investment, public procurement are also significant although these changes may not be as huge as in export sector.

Dr Loc said, popularisation of CPTPP commitments along with the impacts and changes of CPTPP in the new context is essential, helping businesses determine their business objectives and with the markets better.

Based on a study of Japan, for the case of Vietnam, benefits from tariff in CPTPP only helps GDP increase by 1.1 per cent, less than one sixths of the benefits promised by TPP; but the benefits from institutional reforms (just in terms of non-tariff barriers) that CPTPP brings to Vietnam's GDP are almost the same as TPP, helping to increase GDP by about 10 per cent.

"The issue is how to reform the economic institutions required by CPTPP in harmony with the business environment reforms being pushed by the Government. How can both State agencies and enterprises be involved thus to have the whole system reformed in a true, comprehensive and effective way? CPTPP is the opportunity, also the pressure, the standard accelerating our reforms for our own benefits and needs," Dr Loc analysed.

Participating in CPTPP brings numerous opportunities but being a big challenge also for the community of Vietnamese enterprises. According to Dr Loc, to a certain extent, this challenge also requires the relevant State agencies to have their determination in organising favourable and smooth implementation, enabling businesses to take full advantage of the market opportunities; and be transparent, consult enterprises in law review, legislation internalisation and implementation of CPTPP commitments in an appropriate way.

Enterprises should also actively access information on integration and take initiative in working closely with the Government to improve the business investment environment according to the requirements of the FTAs. It is very important for them to actively change the business model, establish strategy and action plan in conformity with the requirements and context of the integration.